Nicholas Schorsch, who has built up one of the largest independent broker/dealer networks over the past year and a half, has stepped down from his role as executive chairman of RCS Capital (RCAP). Mark Auerbach, RCAP’s lead independent director, will take over as chairman. Schorsch has also resigned from his position as chairman and CEO of New York REIT, a publicly traded REIT. He will continue to serve as co-founder, chairman and CEO of AR Capital.
As of 10 a.m. eastern time, RCAP shares were up 5 percent.
The events leading to Schorsch’s resignation started in late October, when RCAP’s sister company American Realty Capital Properties (ARCP) announced a $23 million accounting error. Upon learning of the discrepancies, ARCP Chief Financial Officer Brian Block and Chief Accounting Officer Lisa McAlister resigned from their positions. Of the 31 investment products that RCAP distributes through its wholesale broker/dealer, 14 of them are affiliated with American Realty.
RCAP spokesman Andrew Backman declined to comment beyond the press release.
On Dec. 19, McAlister filed a $50 million lawsuit accusing Schorsch of ordering her to manipulate quarterly financial results. RCS Capital CEO Michael Weil responded, calling the allegations “unfounded.” Schorsch resigned from his post as chairman of ARCP earlier this month.
After the lawsuit was filed, some RCAP analysts said the news put added pressure on Schorsch to resign.
"We see the resignation of Mr. Schorsch as imperative to quell the concern on the shares as the longer he is involved with the firm the longer the overhang/questions on RCAP’s financial statements will likely persist," wrote William Katz, an analyst with Citigroup Capital Markets, in a Dec. 18 research note.
As part of the changes at RCAP, William Kahane will step down from his role on the board of directors. Kahane will succeed Schorsch as executive chairman of New York REIT. Michael Happel, the REIT’s president, will take over as CEO.
“This transition is part of the ongoing maturation of RCS Capital and the continuation of the process we’ve previously announced and undertaken to enhance our corporate governance practices, illustrating our long-term commitment to advancing the interests of all of our shareholders,” said RCAP’s Weil, in a statement.
Schorsch, long been known as a non-traded REIT guru who built up American Realty Capital, made waves in the advisor industry when he announced in June 2013 that he and his partners would acquire independent broker/dealer First Allied from private equity firm Lovell Minnick. He’s been on an acquisition tear ever since. In fall 2013, he announced plans to buy Investors Capital Holding and Summit Financial Group. Early this year, he bought Cetera Financial Group from private equity firm Lightyear Capital, and J.P. Turner. And in August, the firm announced deals to buy VSR Financial and Girard Securities, bringing the network to a total of 9,139 advisors and 11 b/ds.
